Railtrack's Marshall law comes to an end

AS a quoted company Railtrack is a total muddle. It claims to be a PLC which decides its own fate, but essentially takes its orders from Deputy Prime Minister John Prescott.

In exchange for the £1.5bn of public money being pumped in, chief executive Steve Marshall is being forced to accept a non-executive director who will be there to represent the interests of the public and the consumer.

This is a brilliant idea, the taxpayer might think. But this part-time director will find it all but impossible to exercise fiduciary duties to shareholders while looking after the interests of the other groups.

Then we are meant to accept that losing the contract to build phase two of the Channel Tunnel Rail Link is some kind of victory. In future Railtrack will no longer be the leading contractor on construction projects but some kind of participant. This may be the correct way forward given the failure of its delivery in the past, but it means than even if Railtrack manages to reshape its contracting operations, the cash flow and profits from future projects are likely to be less.

As if the government had not extracted enough concessions, it also insists on some sort of preferred share offering to raise £250m and, no doubt, a further dilution of equity.

Refreshingly, Marshall apologises for being 'guilty of over promising in the past'. This will be little comfort to shareholders who bought into Railtrack after a hard City sell, and watched the shares surge to £17 - only to plunge to 570p as the full horror of government interference is realised.

If the government were honest with itself, it would take Railtrack back into public ownership, perhaps using some of the proceeds of the third generation licences.

Instead, it has chosen a public-private partnership, in which the lines of control are confused and the prospects for the shares highly dependent on political whim. No wonder the City has given this plan such a huge thumbs down.

No hiding placeMANUFACTURING in Britain and across much of the industrial world is slowing rapidly. Ministers' confidence that Britain can insulate itself from the rapid slowdown in the United States and the bursting of the technology bubble is looking misplaced.

Indeed, the UK is looking increasingly vulnerable. The purchasing managers index plunged in March to 49.7 from 52.2 in February, the first decline in manufacturing since October. A reading below 50 on this index is said to signal a slowing economy.

It is not just manufacturing that is feeling the heat. The foot-and-mouth crisis may devastate the tourist economy, which in terms of gross domestic product is far more important than farming.

Moreover, with the decline in global markets and the fall-off in mergers and acquisitions, the City could be in for a torrid time.

The slowdown in making goods is not confined to Britain. The latest data from the US shows that its purchasing managers index staged a surprise recovery to 43.1 in March from 41.9 in February, raising hopes that the dip in American output will not be as severe as some have feared. But it is still mired in recession territory.

Europe, too, is starting to reflect the gathering gloom with manufacturing prospects there fading to 51.2 in March from 52.7 in February. Expectations have fallen rapidly from the above 60 reading on the euroland purchasing managers index of just a year ago.

Much of the downward pressure comes from the US with Invensys and Laird among the industrial groups which have publicly voiced their concerns about the American economy. The problems have been underlined by Du Pont, which announced it would cut 4,000 jobs, including Lycra facilities in Europe.

In the financial sector, American Express disconcerted the market with a profits warning following losses of $185m on its investments in high yielding bonds.

Despite all of this, equity markets look a great deal calmer than two weeks ago, when they appeared to be signalling an early global recession.

Nevertheless, the indications are that the world economy is on the turn and growth estimates will be substantially downgraded when Group of Seven finance ministers meet at the IMF in Washington later this month.

With the data from the real economy of output and jobs worsening, expectations that the Monetary Policy Committee will trim base rates by a quarter-point to 5.5% when it gathers tomorrow are increasing. It should lose no time.